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Tax deal in hand, spending package grows in size

Targets expiring tax breaks for biodiesel, distilleries, racehorses and butane

After Senate Finance Chairman Charles E. Grassley, R-Iowa, tweeted his displeasure over the weekend about talks possibly being “detrimental to farmers,” prospects for renewal of the lapsed biodiesel tax credit perked up. (Tom Williams/CQ Roll Call file photo)
After Senate Finance Chairman Charles E. Grassley, R-Iowa, tweeted his displeasure over the weekend about talks possibly being “detrimental to farmers,” prospects for renewal of the lapsed biodiesel tax credit perked up. (Tom Williams/CQ Roll Call file photo)

A deal on tax extenders reached late Monday by top Capitol Hill and White House officials would renew most expired or expiring tax provisions through 2020, with a longer extension for lapsed biodiesel and short-line railroad maintenance credits through 2022.

Adoption of the rule for floor debate on an eight-bill spending package set for floor consideration Tuesday will incorporate the tax package, which will also carry disaster aid provisions and a couple of fixes to the 2017 tax law.

[Lawmaker pay freeze continues under proposed 2020 spending bill]

One such “technical correction” would benefit churches and nonprofits that provide employee parking, and another would benefit rural electric cooperatives in danger of losing their tax-exempt status. The measure would not, however, correct an inadvertent omission of the 2017 law which left out retailers and restaurants from more generous expensing provisions.

The House Rules Committee adopted the rule by voice vote early Tuesday morning, after providing that the tax extenders amendment would be incorporated into the underlying bill.

The tax deal, which leaves out longer extensions of the expired provisions as well as refundable tax credit expansions sought by House Democrats, was reached at 11:50 p.m., according to a source familiar with the talks.

Senate Minority Leader Charles E. Schumer, D-N.Y., Sen. Maria Cantwell, D-Wash., Sen. Rob Portman, R-Ohio, House Minority Leader Kevin McCarthy, R-Calif., House Ways and Means ranking member Kevin Brady, R-Texas, Treasury Secretary Steven Mnuchin and White House legislative affairs director Eric Ueland were present at the meeting. Aides to Speaker Nancy Pelosi, D-Calif., Senate Majority Leader Mitch McConnell, R-Ky., and Senate Finance Chairman Charles E. Grassley, R-Iowa, were also in attendance.

Distilleries, racehorses, butane

The deal would renew numerous tax provisions that either expired at the beginning of 2018 or this year, or were set to expire as of Jan. 1, 2020. They include deductions for mortgage insurance premiums, college costs and large medical expenses; excise tax breaks for craft brewers and distillers; credits for employer-paid family and medical leave, investors in low-income communities, and faster depreciation for racehorses and motor sports complexes, among others.

[Craft distillers, retailers wait anxiously for tax extenders]

In addition to the biodiesel credit, another break for alternative fuels, which benefits companies that run fleets of natural gas-powered trucks, for instance, would be extended.

But tax writers shut down an interpretation of the alternative fuels credit that some oil refiners have been taking advantage of by claiming credits for the butane-gasoline mixtures they produce. Any claims not already paid out by the IRS, or filed after the agency issued a January 2018 ruling that said the butane mixtures shouldn’t qualify, would be disallowed under the provision.

[Disputed butane tax credit could cost nearly $50 billion]

The Joint Committee on Taxation recently said if the provision weren’t fixed, the IRS could be on the hook to pay out some $50 billion in alternative fuels credit claims.

White House officials earlier had been objecting to parts of the tax extenders package sought by Democrats. The House Rules Committee began meeting at 5 p.m. Monday, but postponed a vote until tax negotiators could reach agreement on taxes in time.

A White House official earlier had said “pieces” of the tax package “are cause for concern,” but did not specify what the White House had been objecting to. A House Democratic aide would say only that negotiations were ongoing.

The tentative plan throughout the day Monday had been that negotiators would add the text of a tax package to the eight-bill appropriations bundle that also carries numerous other policy riders. That includes extensions of health care programs, the repeal of three major taxes imposed by the 2010 health care law and retirement savings legislation also agreed to by House Ways and Means and Senate Finance leaders.

The measures included earlier in the bill, which also contains a package of health care program extensions and benefits for retired coal miners, would increase deficits by nearly $391 billion over a decade, the Congressional Budget Office said.

The addition of more tax items will push that cost well north of $400 billion. Similar provisions in legislation approved in June by Ways and Means cost $42 billion, and this price tag is likely higher.

Whirlwind talks

Rumors had been swirling throughout the day about what might be in or out of the package.

After Grassley tweeted his displeasure over the weekend about private talks between Pelosi and Mnuchin possibly being “detrimental to farmers,” prospects for renewal of the lapsed biodiesel tax credit perked up. That credit is coveted by companies that refine and blend the motor fuel, as well as the soybean farmers who produce the main feedstock.

Other sources said green energy provisions sought by Democrats, like extensions of tax credits for solar panel installations and for production of wind-powered electricity, as well as electric vehicles, could be a source of consternation among some Republicans. Electric vehicle credits were left on the cutting-room floor, but the extenders deal would renew the wind credit for another year.

Pelosi’s push for expansions of refundable tax credits for the working poor was also still in play as of late Monday, including child tax credits as well as earned income credits for childless adults.

Republicans previously had rejected those proposals as too costly and a matter that should be left for next year when there was more time to discuss it. They’ve wanted to keep the extenders discussion focused solely on those existing tax code provisions that have either already lapsed or are about to.

Ultimately Democrats couldn’t secure agreement from Republicans and the White House on even a scaled-back refundable credits package.

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